Opting Out of Credit Card Upgrades May Only Be Temporary
This is a guest post by Michael from CreditCardForum.com, a message board and blog for the discussion of credit card deals, as well as a place to talk about the drawbacks that come with the use credit cards. In today’s post, he will be talking about one of those drawbacks.
Last week, Simon wrote about how Citi tried to automatically “upgrade” him to a World MasterCard – a credit card that has no pre-set spending limit. I actually have the Citi Dividend Platinum Select card myself but I am lucky that they haven’t tried to change my card, yet .
However I have faced this same problem with Bank of America forcing my current card to become a Visa Signature card (which is Visa’s version of the World Mastercard – so no pre-set spending limit as well). But before I tell you that story, let’s discuss the basics about these cards…
Why all the hate for World MasterCard/Visa Signature?
These cards are marketed as a high “premium” tier for the aforementioned card issuers. They offer added benefits like free phone concierge, extra travel insurance, purchase protection, and more. All that without an annual fee! So why all the hate?
Well unfortunately, these cards have on drawback – they do not have a set credit limit. Part of your credit score is based on credit utilization (the percentage of your available credit that is used). You don’t want this number too high. According to many talking heads in the finance world, the general recommendation is to not use more than 30% of your credit limit on an account.
On many accounts from current cardholders, the highest monthly balance on these “no pre-set spending limit cards” are reported to credit bureaus as the credit limit. As you can imagine, this may not be to your benefit because it would hurt your credit score.
You may have had a $20,000 limit on your original account but you could have a reported credit limit of $2,000 if that was your highest monthly balance.
Which would you rather have shown as your credit limit? Obviously the $20,000!
Why was there no opt-out option for my Bank of America credit card?
Back in 2004, I switched my checking account to Bank of America. During the process, they also offered me one of those credit card deals where they give you a free $100 bonus if you also open a credit card. I took the bait.
I’ve used that card periodically over the years and had built up a very nice credit limit on it. Then in May, I got a notice in the mail that my specific type of card was being discontinued in August and would be replaced with a BankAmericard Cash Rewards Visa Signature card. I called up and vehemently made clear I did NOT want my new card to be a Visa Signature, instead I wanted it the tier below (Platinum Plus). The CSR said that was not a problem and confirmed the replacement card coming in August would indeed be a Platinum Plus.
Well it’s now August and I got the card in the mail and guess what… it was a Visa Signature. Furious, I called up customer service as I was sure they must have forgotten to fulfill my request. As it turns out, the CSR in May did opt me out of the Signature version. But guess what happened? They decided to re-evaluate my account again on August 1st and made the decision to issue me a Signature without my approval.
Why the no preset limit cards are going to become more common
After talking with someone I know at the bank, it turns out that even if you opt-out of these “upgrades” they might upgrade you again a few months later, without your consent! So basically, these “opt outs” are only temporary, because when they re-evaluate your account again (possibly every few months) they might just try and do the upgrade again.
The reason these banks love these no pre-set limit cards is because it limits their liability.
If you have $20,000 of available credit that’s a $20,000 liability for the bank. But if you have a no pre-set spending limit card, your purchases are approved (or declined) on a case-by-case basis. So, they no longer have to record your account as that $20,000 liability. Instead, they can just cut off your spending whenever they want.
With the shaky economy we’re in today, you can bet that banks will be utilizing this technique more and more to limit their risk.
If you want a set credit limit, what should you do?
As mentioned, for some people the benefits offered on these cards may be a worthwhile deal (I actually have one myself, the Chase Freedom). However, I wouldn’t recommend having more than one of them due to the credit limit predicament discussed above.
If don’t want them, respond to these notices right away and opt out, but even then, there are situations where it’s not a guarantee (like what happened to me, where my card was discontinued). Also, realize that some issuers may try multiple times a year to upgrade your account – so be diligent and pay attention to all the notices they send you.
Simon’s Note: Some people have been able to transfer their credit card limits to a different card under the same issuer. Because the bank may have a goal to convert a select group of cardholders, moving your account to a different card may be a viable option to keeping your credit limit out of the line-of-fire. You may lose some of the perks of the original card though…
We Are Forever Indebted to Technology
I love tech gadgets. Don’t you love tech gadgets?
How can you hold an iPhone 4 and not say “it’s one of the best phones I’ve ever seen”? How can you stare at your 1080p HDTV playing Avatar on a Blu-ray disc and not be mesmerized at the amazing detail and clarity?
This is evidence of the innate behavior of the human race to strive towards what has never been done before – to continue inventing new things that makes a chore or task even easier. Tech companies are, and will forever be, in a perpetual competitive race to release the next gadget or software that will revolutionize our lives.
As a result, consumers like you and I are stuck in between their wars in this age of technology. Nowadays, technology is evolving at such a rapid pace that I find it threatening to our financial situations.
Technology’s Death Grip
Stopping to think about the lifestyles we now lead, we can see how much money we are spending just to keep up with the trends.
Your sizable DVD collection has become obsolete as you can now stream high definition movies straight to your television. Yes, you spent hundreds of dollars on the movies, while racking up some substantial debt, and now you have to pay for your monthly Netflix subscription. Don’t even think about rebuilding that collection with Blu-ray discs (start reading again from the top if you are asking “why?”).
Cold hard fact: Most new consumer technologies are actually old. The toys that just became recently available had to undergo a long process of production and development – the idea or concept originated months or even years ago.
Let’s use the recent 3D craze as an example. The movie Avatar ignited a new trend in the film industry to shoot their movies in 3D. Production companies already had the idea of 3D entertainment a couple years before the movies were released. Then, the top players in consumer electronics (e.g. Sony, Samsung, LG) finds that there is high consumer demand for 3D video and begin making 3DTVs. HDTVs just became a norm in my household and here comes a new trendsetting change.
It is an endless game of playing catch-up. Either we spend the money or we get left behind to miss out on a world of new experiences.
If you cut off my broadband Internet connection, I’d go berserk. If there wasn’t a single computer in the house, I’d go mad. My iPhone 3GS was water-damaged and died and I felt like I lost an arm. They’ve become drugs and the fuel to an addiction. I know that I’m one of the millions of consumers who will forever be indebted to technology.
To imagine how life would be without a computer, internet, and a smartphone is terrifying.
We Willfully Adapt
The easy solution is to stick with what we have and what we can afford. Adopting an Amish lifestyle is also an option…
Obviously, this is easier said than done. When enough people integrate these new gadgets into their lives, it becomes a standard. It dictates a progressive change that we feel would be disadvantageous if we did not follow along.
- In the workplace, following the trends keeps employees up to date. The competitive employment environment weeds out the select group that possess the skill sets to adapt new, upcoming technology because such knowledge would be beneficial to the growth of the business and the company.
- In social settings, peer pressure and the need to impress plays a major role in how likely a new technology will survive in the consumer market. In a few years time, the Apple brand went from a fluke to a fad to a cult and now it’s like a religion. There is no doubt that some of us buy things just to say “I have that”.
- From a curiosity standpoint, technology often sparks an interest. How cool is it that we have vacuum robots working while we are away? Sometimes, I feel like buying new electronics just to see them function in my own home.
- From a functionality perspective, if something that makes your life easier is worth paying for, then why not buy it. After all, advancements in technology are meant to make our lives easier.
Unfortunately, the rate of technological growth is always higher than the rate of growth of our bank accounts. The new gadgets we buy today will be old gadgets tomorrow. Our ability to refrain from constant upgrades will determine how much we spend on technology.
(Photo credit: ndrwfgg)
Weekend Links: Sometimes, Asking Does the Trick
The power of asking often an unappreciated ability. Oftentimes, the answer is a “no”. But, that one time that you do get a “yes”, it infuses an invigorating emotion like you achieved something that was unlikely.
Recently, my two-year web hosting plan with Lunarpages (supporting Realm of Prosperity) was coming to end. They often have early renewals specials but, of course, I pay them very little attention. Until just a few day before the plan’s expiration, I started looking around for deals.
On Twitter, I tweeted my situation and voiced my consideration for other hosting companies should they offer more affordable price packages. Later in the day, I got a call from Lunarpages – boy, do I love the Internet. So, they know have an open mind and it’s their job to keep me. After all, business 101 teaches that it is cheaper to retain an existing customer than to acquire a new one.
Their renewal notice included a bill for 24 months of web hosting at $6.95 per month (total $166.80). I asked the customer service representative if they could offer better pricing in the event that I purchased a longer plan. I’ve had very little problems with Lunarpages so I do not have the bad experience that would deter me from staying with them. In fact, I’ve referred several people to them.
Anyway, I was offered a 36-month plan at the rate of $4.95 per month (total $178.20). That sealed the deal for me. Roughly ten dollars more for an extra year seems worth it to me!
So moral of the story – ASK!
On to some other great talk around the personal finance blogosphere:
- Money CAN Buy Happiness! at Get Rich Slowly. I’m am one to disagree people recite the typical “money cannot buy happiness”. I agree entirely that money opens doors to new experiences. With those experiences, we see more and learn more. Experience and knowledge makes me a happy person. How about you?
- Education and Wealth: You Don’t Need a College Degree, But You Need an Education at Cash Money Life. Coming from a graduating class at a time of rough economic turmoil, we can say that college has done less for us than expected. The piece of paper we call a college diploma only says that we passed our courses and fulfilled certain requirements – it doesn’t say squat about what we learned.
- Please Stop Saying: “I Don’t Make Enough Money To Do That!” at Enemy of Debt. I do believe the sky is the limit when it comes to earning potential. There is always another or a better way to make money. For many living paycheck to paycheck, it is this residual income that offers the new experiences and activities that wouldn’t be available without a little more money.
Yakezie Shoutouts:
- How to Get your Money’s Worth at an All-You-Can-Eat-Buffet at Young and Thrifty. There is probably a dedicated guide to efficient food consumption at an all-you-can-eat buffet but these tips will help a whole bunch. I was at one of these places recently and I can’t help going for a little fried rice when I should be fighting other patrons on the shellfish line.
Recent carnivals in which Realm of Prosperity participated:
- Carnival of Personal Finance #270, the Elvis is Dead Edition at Live Real, Now
(Photo credit: Lachlan Hardy)
A Philosophy on Buying a Home Without Debt
This guest post was provided by Kyle Chezum, a content specialist at Lender411 – a firm that helps homebuyers compare mortgage rates, find local lenders, and locate the best mortgage packages available.
I’m 22 years old – and I’m buying a house. This may come as a surprising feat to some of you. According to a study released by the National Association of Home Builders, the average first-time home buyer is roughly 33 years old. When I buy my house, I will be the exception in that study.
The “Debt-bed”
As part of a company that specializes in matching homebuyers with mortgages, I see deals made around me every day. We’re able to do a stellar job pairing borrowers with lenders but I find myself concernedly hoping that I don’t spend the next 30 to 40 years of my life burdened with a mortgage.
Debt isn’t just a financial impediment – it carries a strong psychological aspect as well. It can brood over you and contribute to your fears of what lies in the future. It can kill passion and excitement.
- If you’re stuck in debt, you’re stuck in a job – you have to keep making those payments every month.
- If you’re stuck in a job, you’re most likely stuck wherever you live – you can’t quite and move across the nation, or relocate to Europe, or drop everything to make a wild attempt at becoming a rockstar.
- If you’re stuck wherever you live, that’s where you’ll wither away. Simple as that.
I know this sounds morbid, but in my opinion, this is what the future looks like under the shadow of debt. “Opinion” is the operative word here. Some people don’t mind debt. Most of the clients we work with each day do not mind it too much, or they wouldn’t be working with us. That’s fine. But I guess I’m kind of a rebel.
A Rigorous Plan
I’m buying a house. But not with a mortgage – not if I can help it. My goal is set on making a 75% down payment on the day that I purchase my home. Sounds impossible?
Here’s how I plan to save for this down payment:
- I went to my bank a while back and set up a dedicated savings account. I told myself that as soon as any money entered that account, it was never coming back out. This savings account is my house fund.
- I get two paychecks each month. Of those, the first goes immediately into my savings account. The second is used to pay for rent, utilities, and other significant bills.
- I start each month with $100 in my checking account – no more than that. I make this $100 last all month. It covers groceries, gas, and other daily expenses.
And that’s it. It works for me. But, everyone has a different situation. I don’t seriously believe that the $100-per-month plan will work for everyone, though if you want to try it, go ahead – I think you’ll be astonished to find what you consider to be necessities.
The following tips are more broadly applicable:
- Budget. If you don’t have a budget, make one. There are a number of simple tools online that allow you to do this. One of the best is Mint.com. Take a few months and just keep track of your expenses – nothing more. See where your money goes. There are probably a few things you can cut out.
- Don’t use credit as income. Avoid credit cards, payday advances, auto loans, and any other short-term debt, if you can. It will always cost you more to use a credit card than it will to use cash. Avoid other extraneous debt.
- Drive a clunker. Forget about buying a brand new car. Get something older, something that runs well but doesn’t have the high price tag associated with that “new car smell”. A mid-90s Toyota sedan, for example, still has tens years of life in it and, depending on the exact car, will only run you a few thousand dollars.
- Don’t do the “luxury vacation” thing. Please don’t. Don’t go on a cruise or on a week-long adventure in Costa Rica. These kinds of trips are beyond expensive. Go on vacation every year when your home is paid off and you’re living debt free. Skip it for now, and those day will be here that much sooner.
- Start saving right now. This is the most important part. You’ll never be ready to save money – just do it.
Say It, Do It
Ultimately, your financial goals and life dreams will serve as driving propellants. Again, if you don’t mind debt, that’s fine. In order to be more financially effective in life, some of you will leverage your assets to some extent. I get that.
What bothers me most, though, is the psychological side. I don’t like debt. Plain and simple. Every month, when I deposit that paycheck into my savings, I tell myself, “I’m buying a house”. Because that’s what I’m doing.
I’m buying a house. Right here, right now – bit by bit. It’s a philosophy, in a way. A constant lifestyle. Movie tickets, dinners out and weekends at Disney World fade into the background. These things aren’t important yet. For now, I’ll work on buying that house.
Simon’s Note: Kyle’s plan is one of apparent extremes. I understand the reluctance to take on debt since interest charges are quite scary. He is doing what he feels is the correct path for him. What he can do may seem impossible to replicate but it isn’t to say that it is unachievable. This is one way to approach a goal. To each their own.
(Photo credit: bendeming)
Joining the Yakezie Alexa Ranking Challenge
The personal finance blogosphere is starting up a storm as of late. Sam from Financial Samurai led the charge 7 months ago with the Yakezie challenge to improve Alexa website ranking. Now he’s taking a huge leap forward.
The Benefits
Many benefits come from a higher Alexa website rank. Yes, any website owner should be working towards increasing their sites popularity. That is an understandable goal because the more traffic a site gets, it also:
- appeals to more advertisers
- increases ad revenue
- leads to more perks
- spreads community recognition
- means straight up bragging rights
The Challenge
The goal was for all participants to reach the top 200,000 on Alexa within a 6-month period. Those already in the top 200,000 will shoot for the top 100,000. And those already the top 100,000 will go for the top 50,000.
The challenge offers a collaborative effort by all participants to promote each other so that we can all reach our goals together. While obtaining a high Alexa rank is the primary goal, the Yakezie challenge also cultivates new relationships between bloggers in order to build a strong network of insightful online friends.
The advent of the brand new Yakezie website has drawn my interest in participating in this challenge. Sure, the money is a great bonus. But, I’ve been writing here on Realm of Prosperity for over 3 years with little expectation of much monetary gain – so I look forward to growth in readership and recognition over an extra buck.
Per the popular advice, do what you love doing and the money will follow.
A Long Journey Ahead
Currently, Realm of Prosperity has an Alexa rank of 1,115,170. The goal is to break 200,000 by February 18, 2011.
I will report on the progress when 6 months has passed. Until then, I’ll be contributing to the wrath of the Yakezie network.
